Comments on: A Rolling China Short Candidate

By: George Thistle

George Thistle — Thu, 25 Nov 2010 21:10:32 +0000

Good insight. I personally think that if China expands it needs to do it all ‘greenly’. They should learn from the West’s mistakes

By: Upbeat

Upbeat — Tue, 23 Mar 2010 22:17:27 +0000

I am about ready to start gradually selling my China holdings, ironically, because the government looks to be implementing policies that will be positive long term–and more like what we should have done in the U.S.
But assuming a dampening of credit and growth, any opinions on APWR, CSKI, DEER, FUQI, STP? That is, how they will be affected short term by stabilizing government economic policies?
Thanks, not only for your presentation, but for your civilized approach to this discussion.

By: dkchinabiker

dkchinabiker — Tue, 23 Mar 2010 22:16:58 +0000

I also like HMIN and I think this stock has the potential. For good cheap accommodations, Home Inn and Motel 168 are the preferred choices for many Chinese. Eventually some of the growth stocks have to turn into China’s Blue Chip companies. As everyone knows, the valuation for the Blue Chip companies will not be priced for growth. This does in fact mean that the P/E for these companies will come down.

With a P/E of 40 and the actual industry multiple at 13.1 and revenue growth declining, I completely agree with the author. The stock has been over bought for some time now. As an investment into Chinese growth, this is presently not the place to put your money.

The trick for growth is getting into the small companies when the multiple is also very low. We can probably consider these undiscovered Gems in whatever sector they are in. Take for example SGZH. This company is sold at 5-6 earnings. The industry multiple for metals and minerals group is 26.1.

SGZH is sold for roughly 5 times less than the industry multiple while HMIN is sold at over 3 times the industry multiple. I would expect HMIN to be on its way down as oversold. I am not a short seller, but HMIN is definitely not on my buy list anytime soon.

By: Zachary Scheidt

Zachary Scheidt — Tue, 23 Mar 2010 22:16:01 +0000

Good service, accessibility, and name recognition are all things that have made the company successful. And I want to be clear – I’m not saying that I expect the company to STOP being successful. It’s just that investors appear to have gotten ahead of themselves and are paying too much for the company.

Everything has a fair price. Markets can swing significantly above or below that mysterious fair price… But eventually fundamentals become important once again, and assets will trade in parity with cash flows, risk premiums, long-term growth, and terminal value.

My expectation is that the stock price will settle at a much cheaper level in the next several months. But of course if investors continue to bid prices higher for most Chinese stocks – HMIN will likely be supported by that movement. There is a function of the price (near term) that is associated with the Chinese market. But long-term we need to look at the value of the franchise.

Thanks for the comments guys.
Zach
zachstocks.com

By: waterlily57

waterlily57 — Tue, 23 Mar 2010 22:15:19 +0000

I don’t prefer to stay in Home Inn but I have to admit they provide a really sumptuous true Chinese breakfast. Yummy. They may have other attractions for the Mainland Chinese I am not aware of. Then there is the brand name and bookings can be made through Ctrip and Elong. So these things have to be taken into consideration.

By: Chimin Sang

Chimin Sang — Tue, 23 Mar 2010 22:14:45 +0000

My last analysis put it about 50% more expensive than the price I deem reasonable. I haven’t found time to do a new analysis, but I believe that it is still overvalued — it has been overvalued since day one, maybe except part of 2008 and 2009.

By: Zachary Scheidt

Zachary Scheidt — Tue, 23 Mar 2010 22:13:53 +0000

I don’t disagree with you, but has that fact already been baked into the price of the stock? HMIN is trading at nearly 40 times expected earnings for 2010. Any disappointment could lead to both revisions to estimates and a lower multiple. Just a 10% cut in earnings expectations (to 77 cents this year) and a 15% decrease in the PE multiple would leave us with a stock trading near $26 – at that point managers could begin to bail, sending the stock sharply lower.

I agree that the industry will continue to attract spending, but investors may have overshot the target.

Thanks for the comment,
Zach
zachstocks.com

By: Ray Bay

Ray Bay — Tue, 23 Mar 2010 22:12:02 +0000

HMIN looks like a good stock to buy. Chinese middle class loves to spend money on travel.